How Crazy is Bitcoin?

by JDH on January 20, 2018

Pretty crazy.

On December 7 it touched $19,697 on the Bitfinex exchange.  (Bitcoin isn’t like a stock, traded on one or two exchanges.  Cryptos are traded on many exchanges, and you can trade peer-to-peer without an exchange, so determining an exact price is not precise).

On January 7 it touched around $9,000. That’s a 45% drop exactly one month.

As I write this shortly before 9:00 am on January 20, (Bitcoin trades 24/7), it’s at $12,600, a recovery of 40% from the low, but still 36% below the high.

Crazy.

I could show you a similar chart for Etherium (the crypto currency is technically called Ether) and it is equally crazy.

So the strategy for playing the cryptos is simple.  Wait for a drop of over 30%, which happens every month or two, and buy.  Then, when it’s up 30%, sell.  Then stay in cash until it happens again.

Simple.

The complicating factor is that, unlike a stock, you can’t just transfer $100,000 to your broker and execute a trade.  You have to register with an exchange, verify your identity, and then transfer your cash.  The cash transferring part is tricky, because most of them only accept e-transfers, or Interac transfers, or electronic funds transfers, and they all have a limit on transaction size.  For some, you can only transfer $2,000 at a time by Interac, with a limit of $10,000 per week, so to invest $100,000 may take ten weeks, unless you are using multiple exchanges.

This hassle is why I believe that cryptos have not yet gone completely insane.  When buying Bitcoin becomes as easy as buying a stock, Bitcoin has a chance at hitting $100,000.

Bitcoin is not the answer.  In it’s present form it is not scale-able, so it will not be replacing cash or Visa for everyday transactions anytime soon.

But cryptos aren’t going away, so it would be wise to, at the very least, understand what’s happening.

Whether you invest real money in this roller coaster is your decision.

I’m also watching gold, which is bouncing around in a trading range, so I don’t know what to say about it, yet.  Perhaps next week I’ll have an opinion.

Until then, thanks for reading.